Economist warns prices will soar to all-time highs in 2026

Steve Hanke, Professor of Applied Economics at Johns Hopkins University, has warned that prices are going to be at their all-time high in 2026.

Speaking in an interview last week with David Lin, the economist touched on the living situation in America, arguing that seemingly positive headline unemployment figures fail to capture the full extent of Americans’ economic unease.

In Hanke’s view, stronger labor market data does not change the fact that everyone’s day-to-day experience is shaping how they view the economy, one observable pattern being rising dissatisfaction among households below the median income level. 

That is, many workers are still left with a sour taste in their mouths as housing costs, prices, and borrowing rates continue to weigh on affordability. Looking ahead to 2026, Hanke argued that next year will not look much different, with prices continuing to hit their all-time highs ‘by definition.’ 

Prices will go up, economist notes

As such, Hanke’s outlook expects continued public frustration even if employment remains strong and nominal wages rise. With inflation still positive, consumer prices will by default reach new highs, reinforcing the perception that life is becoming less affordable.

He warned that this issue would pose a challenge for President Donald Trump. Namely, the combination of persistent price levels, ongoing “money illusion” (i.e., consumers focusing on prices rather than real wage gains), and rising housing barriers may keep sentiment weak.

The economist also predicted that the Consumer Price Index (CPI) will again reach record levels by the end of 2026, barring a period of outright deflation. Likewise, with inflation likely eroding some purchasing power, it will further underscore the gulf between macroeconomic data and household experience.

Instead, Hanke pointed to affordability pressures and a persistent “money illusion” as key drivers of public dissatisfaction. The latter refers to the tendency for people to focus on the rising numbers they see on price tags without fully adjusting for income gains. 

The psychological effect of rising price tag figures is compounded by the fact that prices remain at record highs as long as inflation is positive, even if inflation has slowed. This dynamic, the economist says, keeps cost-of-living frustrations high.

Will foreign markets influence the dollar?

Further, Hanke added that the U.S. dollar’s trajectory in 2026 is going to depend less on recession figures than on foreign markets, notably Japan’s policy mix, Europe’s stagnation, and China’s slowing nominal growth.

Japan, the discussion went, has faced decades of ultra-tight monetary conditions and flat productivity growth. Accordingly, the country’s money supply has expanded well below the rate needed to sustainably hit the Bank of Japan’s 2% inflation target.

Turning to China, he said Beijing faces its own challenge in meeting ambitious nominal GDP goals. As a result, he expects the Asian superpower struggle to meet both its real and nominal growth targets – a de facto recession.

On the other side of the world, Germany and the United Kingdom are already showing recession-like dynamics, while geopolitical tensions in the rest of Europe continue to weigh on sentiment.

Against this backdrop, the interviewee said the dollar will depend on whether other major economies underperform the U.S. 

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